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Low debt payout chance to close the fiscal deficit

The National Treasury building. FILE PHOTO | NMG
The National Treasury building. FILE PHOTO | NMG 

Lower redemption of domestic debt this month compared to other months in the fiscal year has offered the Treasury an opportunity to close the deficit in its domestic borrowing target.

Domestic debt data compiled by Kestrel Capital shows that the expected redemption this month stands at Sh77.7 billion, which is lower than the Sh102.5 billion and Sh88 billion that matured in November and December and the Sh87.8 billion and Sh111.6 billion maturing in February and March 2018 respectively.

The government, the Kestrel data shows, has only borrowed a net of Sh92 billion by mid this month against a revised target of Sh410 billion (from the budget outlook and review paper released in November).

“We believe in the first seven months of the fiscal year 2017/18 about Sh669 billion has been raised against maturities of Sh577 billion, resulting in a new borrowing of Sh92 billion ($887m),” said Kestrel in its latest domestic borrowing scorecard.

The government had initially targeted Sh276 billion in domestic borrowing for the year as per the budget, but the amount was revised upwards to cover for a wider budget deficit caused by among other things food subsidies and financing the repeat presidential poll.

The Treasury has already hit the market for funds this month with a massive Sh40 billion infrastructure bond, whose generous 12.5 per cent tax-free coupon is meant to attract as many bids as possible.

The performance of bonds in recent months has however not been optimal, leaving analysts unsure of the ability of the market to raise the full amount.

“The market took the news positively with initial appetite looking healthy but we remain sceptical if the CBK can raise Sh40 billion in bids,” said Genghis Capital in a market note.

In addition, the Treasury will also be in the market in the usual Treasury bill offers, which seek to raise Sh24 billion per week. In total therefore, the government will have issued securities worth Sh136 billion for this month.

Genghis says the tightening liquidity in the money markets may also become a factor in this week’s securities issues, and may negatively affect uptake of the bond and Treasury bills.

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